THE BLUE DOLLAR AND CHANGING MONEY IN ARGENTINA
If you have been walking around downtown Buenos Aires, you will almost certainly have heard someone shout out “Cambio, cambio, change, change”. These people are known as Arbolitos and help form part of an underground financial network that sees thousands of currency transactions placed every day. In fact changing money on the street has become part and parcel of daily life in the country and if you are living here or even visiting, you will save a lot of money by using these unofficial Bureau de Change’s. Below I will look at how this situation has come about, what the risk involved is and what alternative options are available.
To start with we need to understand the difference between floating and fixed exchange rates. A floating exchange rate means that the value of the local currency (for example the Argentine Peso) will change every day against the value of other currencies and commodities. This will be determined in the stock markets across the world and in general depend on the performance of the respective economies. So for example should the USA discover billions of tons of oil one day, we would expect to see the value of the US dollar increase and hence you would receive more pesos, than before, in exchange for 1 dollar. The alternative is a fixed exchange rate. This is determined by the government of a certain country. For example the government might impose a rule than 1 US dollar is equal to 9 Argentine pesos, no matter what happens.
At present, most European countries, the USA, Australia, Canada, New Zealand, Israel and many others use a floating exchange rate system. However in Argentina the government uses a form of fixed rate which they determine from time to time. This fixed rate is known as the official rate, or white rate and sits at around 9 pesos to the dollar. If you use your credit or debit card in Argentina, this is the rate you will be charged. However, just because the government says 9 pesos are worth the same as 1 dollar, it doesn’t mean it’s true. I can tell you the price of my car is $100,000, but that doesn’t mean that it is worth $100,000. Therefore we have another exchange rate, which represents the perceived true value of the peso, and is known as the “dolar blue” or the blue rate. At present the dolar blue is sitting at around 14.5 pesos to the US dollar. As you can see this is over 50% more than the white rate and will make quite a difference if you are using your savings to live in Argentina. On top of all of this, it is important to note that inflation in Argentina is sitting at around 40% per annum. Therefore, if you wanted to buy a house that was 1 million pesos last year, you would now have to pay 1.4 million, and next year over 1.8 million. This obviously means that the money you have in a bank or under the mattress is becoming less and less valuable. Hence many young Argentines want to change their current wages or savings into US dollars, to protect the value of their savings.
So with Argentines wanting dollars and tourists wanting pesos, there is a high demand for changing money, and taking a percentage cut in between. As we see with services all over the world, if there is sufficient money to be made, there will always be a supply and hence this is why we see a forest of little trees in all the major cities across Argentina.
Is it safe to change money on the street?
First off, strictly speaking these make shift exchange markets do not have a license and are not legal. However, whilst the police have raided some large exchange houses, the individual changing money is unlikely to be at risk from the police.
The bigger issue is the risk of getting robbed when carrying all your cash. There is obviously no way to guarantee your safety, but ways to reduce the risk are: – Only change money with someone a friend has recommended or used before – try and change money more regularly and in smaller amounts. – go home and drop of your money as soon as you have changed it – change your money during daylight
What alternative options are there for changing money?
An alternative option would be to use Xoom (for US bank account holders) or Azimo (for EU bank account holders). Both these companies are completely legal and registered in the US and UK respectively. You simply send money from your bank account and pick it up in person at an office in Argentina. You will simply need to present your passport at the office and fill in some forms explaining what you are using the money for. You the rate you get will be close to but not as high as the rate you get exchanging money on the street. You will also get a transaction fee every time you use these companies. The main advantage of using these companies is if you run out of dollars and you don’t have time to go to Uruguay, you simple send money directly to Argentina from your bank.
Should I change all my money now or change it regularly?
At the time of writing the blue rate is 14.5 pesos to the dollar. This is the highest it has been in over 6 months and I keep hearing people saying “this is a good time to change all your money”. Unfortunately that is rather simplistic and comes from a misunderstanding of currency fluctuations. The current blue rate represents close to the true rate of the peso (and what it might look like on a floating exchange rate system). The value tomorrow could increase or decrease tomorrow depending on factors such as economic output, political changes, police crackdowns on the blue market and the inflation rate. The value tomorrow will not depend on the value it was months ago. So unless you are speaking to a currency trader who has developed a financial model to predict future currency movements, you will have to accept that the rate may increase or decrease in the short term. However to reduce the risk of you losing lots of money you should do more frequent transactions (yes you might not make potential gains from speculating that the blue rate is going to drop, but, if that’s your game, you probably should be working in Canary Wharf or Wall Street). As mentioned before, doing regular transactions will also reduce your risk of getting all your money stolen. Obviously changing money takes time so you will have to balance reduced risk against convenience.